When you are looking at businesses, don't forget that not all businesses will qualify for a visa, no matter how tempting they may look, and it is important to be aware of the possible pitfalls.

The following are some examples:

Too much financing

1. Mr. Smith has found a gas station, purchase price $250,000, but unfortunately he only has $100,000 available. No problem, says the seller, who offers to accept a $100,000 down payment and finance the rest. Mr. Smith signs a purchase contract with a promissory note for $150,000, showing the business as collateral for the loan. His E-2 visa application is refused by the Embassy because the financing is too high - 60% of the purchase price.
2. Mr. Patel encounters a similar problem. He wishes to buy a motel which includes real estate, for $800,000, with a $150,000 down payment. The contract shows a promissory note for $650,000, which at 80% of the total purchase price is too high. The E-2 visa application is refused.

Comments: The E-2 visa regulations limit the amount of financing (borrowing) permitted. While the adjudicating officer has considerable discretion, there are very broad guidelines. If the purchase price is between $100,000 and $500,000, not more than 25-30% financing is recommended with the business assets as collateral. Although the seller may agree to finance more, that is not relevant when the visa application is adjudicated. Close attention must be paid, therefore, to this aspect of your business purchase.

The investment is considered marginal

1. Mrs. Jones wishes to buy a florist business. It has two employees, and the seller reports good profits. However, the business tax returns show taxable income of only $15,000. The seller claims that this is a cash business, and not all income is reported. The Embassy is likely to consider this a marginal investment and refuse the application, as the application will normally be judged on the profits shown on the tax returns.
2. Mr. Chiu is buying a takeaway food business, which has been poorly run, and has only one employee. It is nowhere close to reaching its full potential, when its location near new office premises is taken into consideration. The tax return shows profits of less than $20,000, however. This too, stands a good chance of being considered marginal.

In either situation, I would only recommend proceeding if the applicant could document considerable previous business successes in the UK, or in Mrs. Jones's case, persuade the seller to provide more accurate figures for the period since the last tax return was completed.

A passive investment

1. Mr. and Mrs. Stewart are considering purchasing a small ten-apartment complex for long-term lets. They have adequate funds to eliminate any financing problems. The complex employs only one janitor part-time who does repairs. This is likely to be considered a passive investment, i.e. not one which the owner is likely to be managing and developing on a day-to-day basis. Consequently the E-2 visa application is turned down.
2. Mr. Hames has been a successful builder and developer in the UK. He has seen a plot of land in Florida that he would like to purchase and eventually develop for a motel and apartment complex. He has signed a contract for the purchase, but the Embassy turns his E-2 visa down as it is currently a passive investment.

Comments: The E-2 visa regulations require that the investor be actively involved in managing and developing the business. The services should be provided primarily by employees rather than the owner, whose responsibility it is to direct and develop the business. Moreover, the business must be close to start-up. In an apartment complex with long lets the owner may have little to do on a daily basis, with little employment generated either, and hence this is likely to be considered a passive investment which does not qualify.

In Mr. Hames' case, he should delay a visa application until such time as he is ready to start the land development, and begin generating employment.

It is important therefore to discuss with a specialist the details of the particular business you are interested in before signing any contracts.